Industrial Market Still Among the Tightest
By IAN BRITTON
Like the rest of our nation, the North Orange County Industrial submarket has felt the effects of a depressed business environment made worse by the tragic events of Sept. 11. Business owners and tenants are taking a very conservative approach to real estate and are leasing space required for immediate needs only. But although industrial leasing and sales have leveled off from the robust levels seen last year, the North Orange County submarket remains one of the tightest industrial markets in the nation, with a vacancy rate of approximately 1.7% and an availability rate of 6.4%.
This low vacancy rate may seem confusing as local owners and users have seen many larger spaces (70,000 square feet and up) come back on the market in recent months. North County experienced negative net absorption for the second consecutive quarter in the third quarter. Fullerton and Anaheim have been affected the most, as the Ingram Micro space is now available in addition to the former Norelco, Webvan, Pacific Sunwear, and Data-Aire spaces. Institutional owners have begun lowering their asking rental rates in an effort to attract tenants in a timely manner while the market continues to soften. Even though these larger vacancies paint a depressing picture, it is important to realize that a majority of the North Orange County base is make up free-standing buildings in the 20,000- to 50,000-square-foot range, where activity has remained strong.
Interest rates are at historic lows and purchasing has become an attractive option for industrial users looking to control expenses for an extended period of time, while building wealth. The industrial buyer demand is on the rise and most of the Class A product offered for sale in the mid-size range is absorbed within three months. Even in a mature market entering a decline, sale prices rose 4% in the third quarter. Although employment growth has slowed substantially, that is not expected to have a long-term effect on the local industrial market. The slowdown has delayed the immediate expansion of several local users, but the softening in the market also has created substantial opportunities for companies located in less-functional properties to relocate to newer, more efficient buildings. The diverse North Orange County manufacturing base also has seen a rise in new orders, after 13 consecutive months of declines.
There have clearly been several factors that have slowed the industrial market for the short-term, but the long-term outlook still remains healthy.
Britton is a sales professional in the Anaheim office of CB Richard Ellis.
